The use of drug formularies for the purpose of controlling the costs of drug therapy, and for increasing the quality of drug prescribing and use, is common practice in most hospitals today. The extent to which an individual formulary achieves these goals has been related to several factors. This study proposes to examine those factors related to the drug formulary system, which should act to control drug use, thereby directing the quality of drug prescribing and costs in the desired direction. The working hypothesis to be examined states that increased formulary restrictiveness controls cost and improves the quality of drug use. The study will utilize approximately 20 to 25 short-term general hospitals in a major metropolitan area. Within each hospital four drug therapeutic class user groups will be identified retrospectively, from the previous 12 month period. Random samples of 20 patients (subjects) will be independently selected from each hospital group identified. Pharmacy and medical records will be used to gather dependent measures of drug use for each patient. A standard source will be used to value drug treatment costs and a priori standards for appropriateness of use will be prepared by a expert panel. Independent measures of formulary restrictiveness will be collected by interview in each hospital. A multiple regression equation utilizing restrictiveness variables and control variables will be developed. The ability of these variables to explain the cost and quality variance, as well as the significance of the restrictiveness variables will be explored. A generalizable index will be developed for use in any institution wishing to evaluate its formulary restrictiveness.